Google Inc. is signing up marketers to use its latest display-advertising technology, pressuring rival Yahoo Inc. and advancing the search giant’s effort to change the way ads are sold across the Internet.
Display ads, the eye-catching banner ads that appear atop and alongside most Web sites, have been under pressure as marketers question their effectiveness. Spending on banner ads in the U.S. fell 2.3% last year to $4.77 billion, according to eMarketer.
Google is championing a new stock market-like system for buying display ads. Using its exchange, ad buyers and sellers are matched to ad spaces in a real-time auction. Ad buyers calculate how much they are willing to pay for a particular ad position on the fly, based on how likely the ad is to be seen by the types of viewers they are targeting.
Google released its new technology, called the DoubleClick Ad Exchange, in September. Yahoo has run its own exchange, called Right Media, for years, but has only recently begun to roll out real-time bidding.
“Google has more firepower right now,” said Matt Spiegel, chief executive of Omnicom Group‘s digital ad buying unit OMG Digital. “I’m convinced that the other key players in the space recognize the risk.”
Google is pushing display ads as it seeks growth at a time that its core search business has slowed. Yahoo, which was eclipsed by Google in search but sells far more display ads, is fighting to avoid being leapfrogged again.
At stake is the chance to control a market that could be as lucrative as search ads. While neither company expects all display ads to be sold through exchanges, they both expect it to be a growing part of the market that would help close the gap with the $11 billion U.S. search-ad industry.
Advertisers say the new exchanges allow them to better target their advertising, though the auctions don’t necessarily result in lower prices. In early testing, Google said its research found that the average price a publisher receives for ad space sold through its exchange is more than 130% higher than the average price of similar ad space sold directly to ad networks and other third parties.
Richard Frankel, president of ad technology company Rocket Fuel, says Google’s real-time bidding is a significant advantage over Yahoo’s system. He has begun to exploit it heavily for clients like Nissan Motor Co.’s Infiniti brand.
“If you have a formula for calculating the impression, you can be much smarter than everyone else to really home into the audience,” Mr. Frankel said.
Overall, more than fifty advertising networks are now buying display ads through Google’s new exchange, said Google vice president of product management Neal Mohan, who oversees its display ad technology.
Google’s success is pressuring Yahoo, which entered the display-ad exchange market when it bought Right Media in 2007. In recent months, Yahoo has enhanced Right Media by getting more selective about the sorts of Web sites it will allow to sell ads through the system and by starting to deploy its own real-time bidding software.
Yahoo’s vice president and general manager for advertising platforms, Bill Wise, said the moves aren’t a reaction to Google but part of the evolution of the service. He said Yahoo is maintaining a “significant” lead over Google. Yahoo’s exchange includes its own Web sites, whose massive audiences are often must-buys for advertisers.
Neither side discloses how much revenue it is earning from the exchanges and the raw statistics are difficult to compare.
Before exchanges, savvy advertisers relied mostly on ad networks that allowed them to buy ads targeted at certain types of users—such as moms who live in California—across a range of sites, instead of striking deals with individual Web sites. Now, exchanges are trying to broaden the pool of buyers by aggregating the ad networks.
To make the most of the services, advertisers are turning to technology companies that try to determine how much a particular ad placement is worth based on data about the Web site’s visitors and the advertisers’ customers.
While advertisers say they see room for multiple exchanges, they also note that they would be inclined to switch to whatever performs better.
“Once we get past the test phase, it’s really a math equation at that point,” said Joe Nunziante, an associate director at Spark, a Publicis Groupe marketing agency that manages ad buying on behalf of E*Trade and buys across both services. “The numbers don’t lie.”